1. LOW-INCOME HOUSING TAX CREDITS
RPFSS BROWN BAG
LOW-INCOME HOUSING TAX CREDITS

2. Background/Purposes
LIHTC = indirect federal subsidy used to finance low-income housing
• Congress created as incentive for private developers and investors to provide more affordable rental housing.
• Eligible taxpayers receive a subsidy by claiming a tax credit on their federal income tax returns.
• Dollar for dollar credit (not deduction) claimed pro-rata over 10 years
• Both newly constructed and renovated residential rental buildings 2

3. How does the LIHTC work? 3

4. Project Owner • Proposes project to the state housing agency
• Applies for and is awarded an allocation of tax credits
• Completes the project
• Certifies development costs
• Rents project to low-income tenants 4 4

5. Equity capital for development costs
• LIHTC provides equity funding for the development cost of low- income housing
• By allowing an investor (i.e, partners of a partnership, or members of a manager-based LLC, that owns the project) to take a federal tax credit
• Project Owner raises equity capital by "syndicating" the credit to an investor (or group of investors) 5 5

6. Amount of Tax Credits based on
• Amount of credits awarded to the project
• Actual cost of the project (qualified basis)
• Tax credit rate announced by the IRS (credit percentage)
• Percentage of the project units rented to low-income tenants 6

7. Federal Law (IRC Section 42)
Qualified low-income building
• Residential rental real property
• Rent restricted test
• Minimum Set-Asides - Low-income occupancy percentage 7

8. Compliance Period • Initial - 15 years after project placed in service
• Extended – additional 15 years
• Compliance monitoring – annual certifications
• Land Use Restrictive Agreement – Regulatory Agreement
• Tax recapture of all past and future LIHTC
If the project fails to comply with the requirements of Section 42, including the Set-Asides and Rent Restrictions any time during the initital 15-year Compliance Period 8

9. State Law (HRS Sections 201H-4 & 15/HAR Chapter 15-315
Hawaii Housing Finance and Development Corporation
• Designated state housing agency under HRS Chapter 201H
• Craig Hirai, Esq. (Executive Director)
• Darren Ueki (Finance Manager) 9 9

10. How much in LIHTC does Hawaii receive? 10

11. 9% LIHTC (competitive/volume cap) are
allocated to each state based on population. 11

12. $3,229,324 For 2014, Hawaii received the following:
$2.30 (LIHTC rate) x 1,404,054 (population) 12

13. 4% LIHTC (non-competitive/non-volume cap) are
allocated based on the use of private activity
tax-exempt bonds. The State has a bond
cap of approximately $296 million. 13

14. Hawaii also has a State LIHTC which is 50% of
the amount of Federal LIHTC received. 14

15. How are LIHTC awarded? 15

16. The LIHTC are awarded using what is known as
the “Qualified Allocation Plan” or QAP. 16

17. The QAP is a point-based scoring system
which takes into account mandated
requirements of the IRS and priorities of the
State. It also conveys to applicants other program requirements. 17

18. 18

19. Developers apply for LIHTC through HHFDC’s
Consolidated Application. The Consolidated
Application allows applicants to apply for
various other financing programs with one
application. 19

20. HHFDC has two Consolidated Application funding rounds per year.
• Round 1 (typically in the 1st quarter of the calendar year)
offers 9% and 4% LIHTC along with other financing programs.
• Round 2 (typically in the 3rd quarter of the calendar year) offers 4% LIHTC along with other financing programs. 20

21. Applications are reviewed and scored by HHFDC’s Finance and Development staff utilizing the QAP. 21

22. Recommendations for awarding LIHTC and other financing resources are presented to the HHFDC Board for approval. 22

23. The Following are Sample Permanent Financing Structures for 9% and 4% LIHTC Projects. 23

24. 20% conventional loan (FHB or BOH)
9% LIHTC Project
20% conventional loan (FHB or BOH)
20% - 25% equity gap (government programs)
55% - 60% LIHTC equity 24

25. 20% - 25% HMMF Bond 4% LIHTC Project
35% - 40% equity gap (government programs)
40% LIHTC equity 25

26. Exemptions General Excise Tax Exemptions
(HRS Sections 201H & /HAR Chapter
• Eligible Housing Projects
• Eligible Persons and Firms
• Allowable Costs
Financing
Development
Construction
Income
• Economic Feasibility 26

27. Real Property Tax Exemptions
(ROH Section )
• Rental Housing Project
• 20% of dwelling units reserved for households with annual income not exceeding 80% of area median income.
• Recorded regulatory agreement 27

28. Email: craig.k.hirai@hawaii.gov
Executive Director
677 Queen Street, Suite 300
Honolulu, Hawaii 96813
Phone: (808)
Fax: (808)
www.